TRUSTS Legal Studies [30 credits] Connor Watts [email protected] LEARNING OUTCOMES By the end of this week, you should be
able to: • Describe the maxims of equity with
reference to legal sources to give
fuller details about how the maxims
operate in practice; • Explain the key aspects of the
different types of trusts; and, • Outline the uses of trusts in different
business contexts. STRUCTURE 1. A very brief history of equity. 2. The maxims of equity. 3. Equitable remedies. 4. What is a trust? 5. Types of trusts: express,
resulting, constructive. 6. Equitable estoppel (brief – also
in S2). Texts: Alistair Hudson, Equity and Trusts (10th edn, 2021); Gary Watt, Equity and Trusts Directions (7th edn, 2021); Iain McDonald and Anne Street, Equity and Trusts
Concentrate (8th edn, 2022). All good to look at – Concentrate texts good for studying and revising key content in particular. 1. A VERY BRIEF HISTORY
OF EQUITY. • Equity “moderates and reforms the rigour, hardness and edge of the
law”. (Lord Cowper in Lord Dudley v Lady Dudley (1705) • Concerned with conscionable outcomes and less concerned with
the rigid formalities enforced by the common law. • Developed in the Court of Chancery to ensure just outcomes in
individual cases where strict application of CL rules would not
produce a just outcome. • Judicature Acts 1873 merged the practise of CL and equity, so all
courts now apply both systems. Why did it develop? • By C15th, the common law was experiencing problems: court
system was slow, very technical and expensive. There were also too
many complaints for only the King to hear. • To remedy these problems, the Court of Chancery was established.
The Chancellor heard them instead. Developed the system of equity. • Equity offered a less strict view of formalities and a wider range of
remedies – e.g. specific performance, injunction – not mainly
damages. Court of Chancery 2. THE MAXIMS OF EQUITY. • 12 maxims of equity
per Hudson (2022: pp.
20-28). These are
applied flexibly,
showing equity’s
preference for broad
ethical principles over
the strict rules of CL.
(Ibid.) 1. Equity will not
suffer a wrong to
be without a
remedy. 2. Equity follows
the law. 3. Where there is
equal equity, the
law shall prevail. 4. Where the
equities are equal,
the first in time
shall prevail. 5. Delay defeats
equities. 6. He who seeks
equity must do
equity. 7. He who comes to
equity must come
with clean hands. 8. Equality is
equity. 9. Equity looks to
the intent rather
than to the form. 10. Equity looks on
as done that which
ought to have been
done. 11. Equity imputes
an intention to fulfil
an obligation. 12. Equity acts in
personam. 1. Equity will not suffer a wrong to
be without a remedy. Where the common law or statute
don’t have a remedy, equity will
intervene.
2. Equity follows the law. But not slavishly or always.
Generally, equity will win over non- statutory common law, but not over
statute. 3. Where there is equal equity, the
law shall prevail. If there is no clear outcome, the
most suitable common law
principle will be applied. 4. Where the equities are equal, the
first in time shall prevail. The first to create/acquire rights
will have the court’s priority. 5. Delay defeats equities. 6. He who seeks equity must do
equity. If a claimant has acted unfairly, this
will defeat a claim in equity. 7. He who comes to equity must
come with clean hands. If a claimant has acted
unconscionably themselves, this
defeats a claim in equity. 8. Equality is equity. If parties have an equal claim in a
property, the title will generally be
divided equally amongst them.
9. Equity looks to the intent rather
than to the form. 10. Equity looks on as done that
which ought to have been done. 11. Equity imputes an intention to
fulfil an obligation. 12. Equity acts in personam. 13. Equity will not
permit statute or
common law to be used
as an engine of fraud. 14. Equity will not
permit a person who is
trustee of property to
take a benefit from
that property qua
trustee. 15. Equity will not
assist a volunteer. 16. Equity abhors a
vacuum. 17. A trust operates on
the conscience of a
legal owner of the
property. Hudson also adds these maxims that “cut to
the heart of equity”: 3. EQUITABLE REMEDIES. 1. Specific
performance 2.
Injunctions 3. Recission 4.
Rectification 5. Account • Where financial damages wouldn’t be sufficient, the courts can
order for specific performance. This involves a party being
compelled to complete their obligation. • Specific performance can only be granted at trial, because it’d be
inappropriate for a judge to do so without knowing the full
picture/examining all the arguments and evidence at a trial, etc. • Must usually be a unique obligation required. • Courts won’t enforce obligations that would require constant
supervision and are reluctant to enforce SP for specific services. • Examples: Sky Petroleum v VIP Petroleum [1974] and Behnke v
Bede Shipping Co Ltd [1927]. 1. Specific performance • More commonly awarded at the end of a trial, but an interim
injunction can be awarded before a trial. • Can be prohibitive, mandatory or quia timet. 2. Injunctions PROHIBITIVE MANDATORY QUIA TIMET MANDATORY Prevent a breach of some
obligation. E.g. Venables v News
Group Newspapers [2001]. At full trial, require
performance of
obligation like SP. ---- INTERIM Lord Diplock in American Cyanamid
Co v Ethicon Ltd [1975] set out the
guidelines: serious question to be
tried, damages inadequate, balance
of convenience requires injunction – risk of doing injustice to a party. American Cyanamid
tests apply, but a
high degree of
assurance that the
grant will be the right
decision after the
trial is needed. Do not require proof of
actual harm as they
prevent harm from
occurring – e.g.
Venables case. • Freezing orders (previously: Mareva injunctions) Orders to freeze a defendant’s assets. If there is a danger that
someone will try to destroy or hide assets to avoid paying
damages, a freezing order can be issued to freeze assets up to
the value of the claim being pursued. The claimant gains no property rights over the frozen assets – an
example of equity acting personally. However, it is possible that
this is somewhat not the case – Z Ltd v A-Z and AA-LL [1982]. Test is American Cyanamid + Derby & Co Ltd v Weldon [1990]. • Aims to restore both parties to their original positions before
any wrong happened. Can be used for misrepresentation,
undue influence, duress or mistake per Bainbridge v
Bainbridge [2016]. • Can be barred if: 3. Rescission Circumstance Case Innocent 3rd party negatively affected Phillips v Brooks [1919] Delay in making the claim Leaf v International Galleries [1950] Claimant affirms the contract Long v Lloyd [1958] Impossibility of restoring the parties Erlanger v New Sombrero Phosphate Co (1873) • Allows the amendment of a document that doesn’t reflect the
parties’ actual agreement. • Courts hesitate to do this unless there is good reason – per City of
Westminster Properties Ltd v Mudd [1959]. • Principles to test laid down in Racal Group Services Ltd v Ashmore [1995] and Giles v RNIB [2014]: a. Clear evidence that document doesn’t reflect true intentions of the
parties. b. The flaw is not just about the consequences of what they wanted
but the real intentions. c. All parties agreeing to the rectification is not enough by itself. 4. Rectification • Per Attorney-General v Blake [2000], this is used to make a
fiduciary repay any bribes, unauthorised profit or profit
obtained from a breach of confidence. 5. Account 4. WHAT IS A TRUST? • Watt (2021: 27) says it is difficult to define a “trust”.
• Thomas and Hudson (2010) define a trust as: “the imposition of an equitable obligation on a person who is the legal
owner of a property (a trustee) which requires that person to act in
good conscience when dealing with that property in favour of any
person (the beneficiary) who has a beneficial interest recognised by
equity in the property.” • It is almost always true that the trustee holds the legal title and the
trustee must discharge the purposes for which the property is
vested in them. (Watt 2021: 26) • Parties involved. • See: (Hudson 2022: 42) TRUSTEE BENEFICIARY TRUSTEE Legal title
and
equitable
interest Personal
obligations
under the
trust • Settlor must own whole property – legal and equitable interests to
be able to transfer it. Once trust is validly declared (e.g. property
transferred), settlor has no further active role. • Trustee has property vested in them. BUT the trustee cannot use the
asset for their own purposes. The wording of the terms of the trust
are important for establishing what the trustee can and cannot do.
Exact obligations found in the trust document.
• However, law does impose some obligations – e.g. amount of info
trustee must give the beneficiaries, appointment/retirement of
trustees, termination of the trust, etc. • The trustee’s powers are FIDUCIARY in nature. This means a person
has entered into a relationship of trust and confidence from another
and the trusted person must fulfil their obligations to the other. • Per Millett LJ in Bristol & West Building Society v Mothew [1998],
some key duties of a fiduciary – and thus a trustee – are that: • A fiduciary can be made to make up for any losses suffered. To act in good
faith Not to make a
profit from the
trust Must avoid
conflicts of
interest Cannot act for
interest of others
or self without
principal’s
informed
consent Beneficiaries has a range of remedies in the event of a breach of trust,
including: • Protection from insolvency of the trustee, as the property rights are
part of the beneficiary’s estate, not the trustee’s. • Right of compensation if a breach of trust results in the property
being lost, per Target Holdings v Redferns [1996]. • Right to trace and assert rights over any substitute property, per
Pilcher v Rawlings (1872), including any one not a trustee but who
participated in the breach, per Royal Brunei Airlines v Tan [1995]. Beneficiaries’ position will vary somewhat depending on the terms of
the trust. 5. THE TYPES OF TRUSTS. • Three different types of trusts. EXPRESS RESULTING CONSTRUCTIVE Trusts created
explicitly by the settlor. Implied by the court, so not
created by settlor but
settlor may’ve intended to
create it. Arises by operation of law
– by court when
circumstances are
appropriate. No settlor. Can be created by
writing or orally. Per Westdeutsche Landesbank Girozentrale v
Islington LBC [1996],
created in 2 situations:
1 – beneficiaries unclear;
or, 2 – contributor to price of
land. When defendant has
unconscionably taken
property into their
possession, they’ll be
treated as holding it on
trust for rightful owner. Trust property must be
sufficiently identifiable. Beneficiaries must be
clear. Also used by courts to
effect common intentions
of families. • Newer than waiver + can be seen as a development of it.
Sometimes called “equitable estoppel”. 6. PROMISSORY ESTOPPEL Hughes v Metropolitan Railway Co (1877) • Under the lease, the def were obliged to keep the premises in good repair and, in Oct 1874,
the landlord gave them 6 months’ notice to do some repairs, stating if not done in that
time, the lease would be forfeited. • In November, the parties negotiated Hughes buying the tenants’ lease with the tenants
saying they wouldn’t complete works in the meantime. • By Dec, the negotiations had broken down. By end of 6-month period, landlord argued that
the lease was forfeited. Central London Property Trust v High Trees House Ltd (1947) • In Sept 1939, claimant leased block of flats to def. However, outbreak of WWII affected
these plans, as many had left London. Many of the flats were left empty as a result. • Claimant agreed that the defendant could pay half the ground rent. By 1945, the flats
were full again. Def sought full ground rent for the last 2 quarters of 1945, arguing the
reduction was only for the duration of the war or until flats were fully let, whichever was
sooner. Both events had happened by time payment was due. Court accepted this argument, holding that the full rent was payable for the last two
quarters and from then on—BUT only b/c the claimant proved that the promise was for the
limited period of time (otherwise they wouldn’t have been successful). Principle: A contracting party who promises not to enforce a contractual right will not be
able to enforce that right later if it would be inequitable to do so, and the promise had been
